By Mary-Lynn Cesar for Kapitall.
On Sunday, Minneapolis-based medical device maker
Medtronic Inc. (
announced that it was
Covidien plc (
for $42.9 billion. While the deal brings Medtronic
significantly closer to realizing its global and portfolio
strategies, another interesting aspect of the acquisition is
that the new company will be headquartered in Ireland. The
Emerald Isle is popular with corporations thanks to
corporate tax rate, which is considerably lower than the US's
If the acquisition is approved and Medtronic does officially
make Ireland its tax domicile,
that it will be the biggest company to avoid US corporate taxes-the
highest in the world-by incorporating abroad. The
maneuver, called tax inversion, has grown increasingly
prevalent within the healthcare and oil industries over the last
flirted with the idea in May while pursuing
, which is headquartered in London. Back in 2012, Dr. Dre
established a tax base
in Ireland for Beats. In total, around 44 American
companies have incorporated abroad in recent years, costing the US
billions in tax revenue.
Some companies claim that tax inversion will enable them to
increase profits since they'll be paying less in taxes. In
that the company's move to the UK was expected to lower its tax
rate by five percentage points and, in turn, potentially boost
annual profits by $100 million.
The potential for greater profits as a result of a reduced tax
rate inspired us to take a closer look at the companies involved
with tax inversion. We began with a universe of stocks pulled from
list of companies
have made tax inversion deals over the last nine
Next, we screened that group for companies that have
earnings per share (
) growth trailing twelve months (
) vs. prior TTM than the industry average
projected EPS growth for next year greater than the
. This shows that these companies were high-growth firms in the
past and are believed to be high-growth firms into the near
Finally, we looked for potentially undervalued stocks by
screening for stocks with a
price-to-book (P/B) ratio below the industry
. This valuation ratio compares a stock's price to its book value
and is calculated by dividing the most recent closing price by
the stock's book value per share in the most recent quarter.
Like many valuation ratios, a low P/B ratio doesn't guarantee
that a stock is undervalued; in fact, there may just be something
wrong with the firm. That's why we looked at EPS growth
first so we could get a sense of past performance
and perceived forward trajectory.
We were left with three stocks on our list. Do you think tax
inversion will be a major contributing factor to the EPS growth of
these companies? Use this list as a starting point for your own
Click on the interactive chart to view data over
1. Argo Group International Holdings, Ltd.
): Underwrites specialty insurance and reinsurance products in the
property and casualty market worldwide. Market cap at $1.31B, most
recent closing price at $49.92.
EPS growth (TTM vs. prior) TTM is 138.26% vs. an industry
average of 101.27%.
Projected EPS growth (next year vs. this year) is 12.26% vs. an
industry average of 8.32%.
P/B at 0.86 vs. an industry average of 1.55.
The company acquired PXRe and moved to Bermuda in 2007.
2. Applied Materials Inc.
): Provides manufacturing equipment, services, and software to the
semiconductor, flat panel display, solar photovoltaic (PV), and
related industries worldwide. Market cap at $27.23B, most recent
closing price at $22.37.
EPS growth (TTM vs. prior) TTM is 315.15% vs. an industry
average of 57.25%.
Projected EPS growth (next year vs. this year) is 25.23% vs. an
industry average of 21.56%.
P/B at 3.76 vs. an industry average of 4.10.
The company is acquiring Tokyo Electron and will move to the
Netherlands this year.
3. Chiquita Brands International Inc.
): Engages in the distribution and marketing of bananas and fresh
produce under the Chiquita and other brand names worldwide. Market
cap at $473.89M, most recent closing price at $10.10.
EPS growth (TTM vs. prior) TTM is 89.07% vs. an industry average
Projected EPS growth (next year vs. this year) is 593.75% vs. an
industry average of 13.58%.
P/B at 1.23 vs. an industry average of 5.91.
The company is merging with Fyffes and will be based in
(List compiled by Mary-Lynn Cesar. EPS and P/B data sourced
from Fidelity. Monthly return data sourced from Zacks Investment
Research. All other data sourced from Finviz.)
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